Delhi High Court Upholds ITAT Order Rejecting Congress' Plea To Stay Notice For Recovery Of Over ₹100 Cr Outstanding Tax

The Delhi High Court on Wednesday upheld the order passed by the Income Tax Appellate Tribunal (ITAT) on March 08 refusing to stay a demand notice issued to Indian National Congress for recovery of outstanding tax of more than Rs. 100 crores for the assessment year 2018-19.

“..while we find no ground to interfere with the order impugned, we dispose of the writ petition according liberty to the petitioner to approach the ITAT by way of a fresh stay application bringing to its attention the change in circumstances noticed above,” a division bench comprising Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav said.

The court granted liberty to the Congress to move a fresh application for stay before the ITAT bearing in mind the developments which have occurred in the meanwhile including that of an amount of Rs.65.94 crores having been recovered by the tax authorities pursuant to encashment of the bank drafts.

“Whether the aforesaid circumstance would merit protective measures being granted in respect of the balance outstanding demand, and if so to what extent, is an issue which must necessarily be considered by the ITAT in the first instance it being the tribunal which is in seisin of the principal appeal. We thus refrain from rendering any conclusive opinion in this respect and leave this aspect open for the consideration of the ITAT,” the court said.

It added that Congress' application, if so moved, may be considered by the ITAT with due expedition.

The bench said that ITAT had accorded due consideration upon the merits of the challenge which stood raised and therefore, rejected Congress' submission that the tribunal had failed to apply its judicial mind for the purposes of a prima facie evaluation of the questions which stood posited. 

“As we read the impugned order, we come to the firm conclusion that the ITAT has carefully examined the various contentions and challenges which stood raised and has expressed a prima facie opinion and which alone was required while considering an application for stay,” the court said.

It added: “In the end, we take note of an amount of Rs. 65.94 crores having been recovered by the respondents in the interregnum and that amount translating to roughly 48% of the outstanding demand. This changed circumstance is an aspect which, in our considered opinion, would merit consideration by the ITAT in case the petitioner chooses to move a fresh application for stay.”

Senior Advocate Vivek Tankha appeared for Indian National Congress, whereas Advocate Zoheb Hossain appeared for the income tax authorities.

While reserving the order, the court had remarked that though the demand was of 2021, a reading of the impugned order showed that Congress did not take the stand of seeking to securitize the demand or even offered to securitize the same.

The bench had added that it was a “badly handled matter” and that somebody from Congress' office “went off to sleep” right from 2021.

Hossain submitted that though Congress was offered to pay 20 percent of the demand way back in 2021, the same was not done since then and thus, in such situations, the entire amount becomes recoverable.

“I can show a large number of cases who don't pay 20 percent, we recover 100 percent,” he had said.

Furthermore, Hossain said that the original tax demand was Rs. 102 crores, which became Rs. 135.06 crores with interest. He added that Rs. 65.94 crores have been recovered till now.

The counsel also said that Congress has 120 bank accounts and more than Rs. 1400 crores are kept in them. He said that the party did not plead or demonstrated or argued financial hardship before the Tribunal.

However, Tankha had said that as per his instructions, Congress has Rs. 300 crores in its bank accounts. He also said that the authorities have reopened the assessment of the last 7 to 8 years and that in such situation, only constitutional courts will protect Congress.

“With all due respect, Mr. Tankha, merely because someone chose to wake up in February won't change the facts,” the court had remarked.

About Impugned Order

The assessment of Congress party was completed at an income of Rs.1,99,15,26,560 against nil income declared in its return, thereby resulting in demand of Rs.105,17,29,635.

The difference between the returned and assessed income was solely on account of Congress' claim for exemption under Section 13A of the Income Tax Act, which was denied by the Assessing Officer.

The exemption was denied on two grounds, that the return of income filed by the political party on February 02, 2019, contravened the time limit prescribed and that clause (d) of the first Proviso to Section 13A was violated since Congress had received donations of Rs.14,49,000 in cash from various persons, which was in excess of Rs.2,000.

Congress thus prayed before the ITAT that pending disposal of its appeal, the recovery of tax demand arising on account of the assessment order dated July 06, 2021, be stayed.

The ITAT dismissed Congress' plea for stay and observed that once the mandatory requirements contained in Section 13A are violated, there is no discretion with the income tax authorities to give any relaxation in allowing the exemption envisaged in the said provision.

It further said that the authorities did not make any error in denying the income tax exemption claimed by the Congress party and that no prima facie case was made against denial for the said exemption.

“The chronology of events, which have been canvassed before us starting from the passing of the assessment order on 6th July, 2021 and culminating with the issuance of notice under section 226(3) of the Act on 13th February, 2024, in our view, does not justify an inference that the recovery proceedings have been done in an undue haste,” the Tribunal had said.

Title: INDIAN NATIONAL CONGRESS v. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL-19 & ORS.

Citation: 2024 LiveLaw (Del) 297

Click Here To Read Order